Controlling forex flow is a costly affair: Subbarao


Mumbai: Amid expectations that RBI may intervene in the forex market in the face of huge capital inflows, Governor D Subbarao today cautioned that such a move to check rupee appreciation would increase liquidity and aggravate inflation. Subbarao's comments come a day after Finance Minister Pranab Mukherjee ruled out any measures to control capital flow, but said RBI may intervene in forex market if needed. Since this September, the rupee has risen nearly 6 per cent on the back of a whopping USD 11.7 billion foreign fund inflows into the domestic stocks. "The biggest problem thrown up by capital flows is currency appreciation which erodes export competitiveness. Intervention in the forex market to prevent appreciation entails costs," Subbarao said here. "If the resultant liquidity is left unsterilised, it fuels inflationary pressures.
Source: PTI